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This is a nice illustration of the “high-low fallacy” that Michael Mauboussin talked about in his “let’s Make a Deal” publication: High P/E companies buying low P/E companies in an all stock deal and proclaiming earnings accretion but ignoring the declining P/E. As you illustrate, this doesn’t take into account the real economic effects of cash-on-cash returns. Instead, it is often manipulated accrual accounting that doesn’t account for the amount paid to get those earnings (cash flows).
Typically, even when the high-low error is kept in check, deal synergies and balance sheet markups get thrown in and only time will tell if they are accurately estimated. Often, they seem to be over-exaggerated to get the deal done and to payoff bankers and executives (who often get paid in accretion-driven bonuses). No surprise that the majority of these deal binges tend to be value-destructive for the shareholders of the acquiring companies. However, the excessive bloat created from these binges lead to some extraordinary purges that dramatically enhance share price (PFE, HPQ, EBAY are great examples of this)…and then the cycle repeats itself. Thanks for the hands-on concrete example.